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CORfRIGUT DEPOSm 




CHARLES M. SCHWAB 



/ 

THE 

Story of Bethlehem 
Steel 



BY ARUNDEL COTTER 

n 

Author of "The Authentic History of the United States Steel Corporation^' 



I916 

The Moody Magazine and Book Company 
New York 



D 






.cpV' 



COPYRIGHT, I916, BY 

THE MOODY MAGAZINE AND BOOK COMPANY 

ALL RIGHTS RESERVED 



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DEC 30 1916 "^ 

©Cl.A4r)7329 ^i^ 



TABLE OF CONTENTS 

PAGE 

Chapter I 1 

Town Founded by Moravian Colonists — It Is named — 
Iron Discovered in Saucon Valley — Early History of 
Bethlehem Steel Organization and Failure of United 
States Shipbuilding Company — Schwab Comes to 
Bethlehem. 

Chapter II 15 

When Schwab Went Down to Bethlehem — Early Ex- 
pansion — Rail and Structural Mills — Bonus Plan — 
Lfean Years — Rail and Structural Mills Completed — . 
Going Into Debt — Chile Ore Contract — Big War 
Profits. 

Chapter III 34 

Bethlehem and the War Stock Boom — Why the Stock 
Was Neglected — Plans for Export Trade — Schwab's 
"Luck"— Schwab Refuses $54,000,000— Success of "Beth- 
lehem Section" — Purchase of Pennsylvania Steel — Big 
and Little Guns — Continuation of Dividends. 

Chapter IV 53 

Schwab's Theories — "The Boys of Bethlehem" — Eugene 
G. Grace — Daily Meetings — Grace's "Luck" — Schwab's 
Seeing Eye — Bethlehem's Future Assured. 



LIST OF ILLUSTRATIONS 

Charles M. Schwab Frontispiece 

General View of Bethlehem Plant Facing page 1 

Longest Trainload of Steel Ever Shipped Facing page 15 

Argentine Battleship Rivadavia Facing page 31 

Interior View of Bethlehem Gunshop Facing page 35 

Big Guns in Process at Bethlehem Facing page 49 

Eugene G. Grace Facing page 53 

Archibald Johnston Facing page 61 



FOREWORD 

A PREFACE is usually an apology or justifi- 
cation, and I do not intend to apologize for 
this work, believing that the wonderful suc- 
cess of Bethlehem Steel completely justifies the 
telling of its story. 

On looking over the pages, however, it seemed 
that more might have been devoted to a study 
of Charles M. Schwab, the man. But in the final 
analysis it is plain that when one writes of Beth- 
lehem he writes of Schwab, who made it. 

Arundel Cottee. 

New York, November 1, 1916. 



CHAPTER I 

THE STORY OF BETHLEHEM STEEL 

Town Founded by Moravian Colonists — It Is Named — Iron 
Discovered in the Saucon Valley — 'Early History of Beth- 
lehem Steel Organization and Failure of United States 
Shipbuilding Co. — -Schwab Comes to Bethlehem 

ON the twenty-fourth of ' December, 1741, 
late at night, a small body of men gathered 
in a rude log hut in a tiny clearing in the 
Lehigh Valley, on the banks of the Lehigh 
River. They met, far in the wilderness, to cele- 
brate the Christian feast and their voices, raised 
in hymns, echoed throughout the virgin forest 
and were answered only by the howls of wild 
animals. 

These men had fled from religious persecution 
in Europe. Seeking a spot where they might wor- 
ship in peace they had selected the Lehigh 
Valley for their future home. And on this night 
they had met not only to celebrate Christmas 
Eve, but officially to found the settlement, for 
during the day had arrived from abroad the 
patron by whose aid they had escaped from per- 
secution, the aged Count Zinzendorf. 

At the approach of midnight the old count, who 
had been leading the pilgrims in prayer and ex- 
hortation, paused, and with the light of a great 
idea shining from his eyes, said; 



4"^ ' '«Wi, 



2 The Story of Bethlehem Steel 

''Brothers, how more fittingly could we call 
our new home than to name it in honor of the 
spot where the event we now commemorate took 
place. We will call this place Bethlehem." 

How Bethlehem Was Named 
And so was Bethlehem named after the birth- 
place of the Man of Peace. Bethlehem, to-day 
the home of the greatest war material plant in 
the world! 

The colonists were a sturdy and hard-working 
race, and the new community prospered and grew 
in size and importance. It became the home of a 
new religious sect, known as the Moravians, a 
people peculiarly devoted to peace. For more 
than a century its inhabitants kept themselves 
apart. None save those of the faith might own 
property there or be buried within the town lim- 
its. But gradually this changed and a more lib- 
eral policy took its place, and Bethlehem was in- 
corporated as a town about the middle of the 
nineteenth century. 

In the early fifties, shortly before the Civil 
War, deposits of workable iron ore were discov- 
ered in the Saucon Valley, near Bethlehem, and 
local capitalists incorporated the Saucon Iron 
Co. to develop these ores on April 8, 1857. On 
March 31, 1859, the name was changed to the 
Bethlehem Eolling Mills and Iron Co., and again, 
on May 1, 1861, to the Bethlehem Iron Co. 



Early History 3 

Apparently the original organizers of the com- 
pany were so busy selecting a suitable name for 
their enterprise that they had little time for any- 
thing else, for it was not until July 16, 1860, 
that ground was broken for the construction of 
a plant at South Bethlehem, just across the river 
from the original colony, and the site of the ex- 
isting steel works. The disturbance caused by 
the Civil War further delayed construction, and 
it was not until Jan. 4, 1863, that the first blast 
furnace was put into operation. The puddle fur- 
naces started later the same month and in the 
following September the rolling mill of South 
Bethlehem turned out its first batch of iron rails. 

The Beginning of Bethlehem Steel. 
Bethlehem, says Casson, in his ''Romance of 
Steel," was created out of the money of Joseph 
Wharton and the brains of John Fritz. Fritz, 
who died only a few years ago, was one of 
the pioneers of American steel-making, and he 
builded the Bethlehem plant soundly and well, 
as his successors will testify. In the early sev- 
enties Fritz saw the possibilities of the new Bes- 
semer steel-making process, and it did not take 
him long to grasp the importance of the discov- 
ery of Kelly and Bessemer. He decided to make 
steel at Bethlehem. Immediately the construc- 
tion of the necessary converters was begun and 
on October 4, 1873, the first heat of steel was 



4 The Story of Bethlehem Steel 

made at the plant. Two weeks later the first 
rolling of steel rails was completed. 

Under Fritz's able management the plant grew 
and prospered, but it is safe to say that not even 
he ever dreamed how great it would one day be- 
come. The changes of the years may best be il- 
lustrated by the following balance sheets showing 
the assets and liabilities of the old Bethlehem 
Iron Co. as of July 1, 1862, and of the Bethlehem 
Steel Corporation as of December 31, 1915, the 
date of its last report. 





Comparative Balance Sheets. 


Bethlehem 


Iron Co. 


Bethlehem 


Steel Corporation. 


July 1, 


1862. 


December 31, 1915. 


$121,303 




Property account 


$76,955,705 


21,321 




Current assets 


66,663,721 






Deferred items, etc. 


2.160,424 


$142,624 




Total Assets 


$145,779,850 


$136,002 


Capital Stock 


$29,770,000 


6.622 




Current liabilities 


52,329,314 






Bonded debt 


31,099,000 






Reserves 


1,303,146 






Surplus (appropriated 








and unappropriated) 


31,278,390 


$142,624 




Total Liabilities 


$145,779,850 



The company has grown to 1,000 times its 
original size, and more. Up to 1886 Bethle- 
hem's output consisted principally of commer- 
cial products of iron and steel, but in that year, 
at the suggestion of W. C. Whitney, then Secre- 
tary of War, it was decided to go into the manu- 
facture of armor plate for the United States 



First Armor Plate Mill Built 5 

Government, a mill was built for that purpose, 
and for many years thereafter attention was de- 
voted almost exclusively to the manufacture of 
offensive and defensive articles of war. In fact, 
it has only been within very recent years that 
any important attempt has been made to return 
to the regular steel products. 

But while the Bethlehem plant was a well- 
equipped and well-managed armor-plate factory, 
and gave very satisfactory returns to its stock- 
holders, it never attained prominence until re- 
cently. Its early history was the humdrum, the 
stodgy, rather than the spectacular. One thing 
changed all this and converted Bethlehem from a 
sleepy town to a wide-awake one, from a pros- 
perous community to a rich one. This was the 
coming of Charles M. Schwab. 

Bethlehem Steel Company Organized 

In 1899 the Bethlehem Iron Co. had grown 
until it had a capital of $7,500,000. In that year 
the Bethlehem Steel Co. was organized and ob- 
tained control of the iron company's properties 
on a 999 years' lease on a guaranty of 6% on the 
outstanding stock. The new company also took 
over the iron company's bonded indebtedness of 
$1,351,000. Subsequently the stock of the Bethle- 
hem Iron Co. was exchanged for bonds of the 
steel company, paying 6%, and the lease was 



6 The Story of Bethlehem Steel 

cancelled, the properties being transferred out- 
right to the Bethlehem Steel Co. 

Meantime the steel companies of the United 
States had been merging into greater and still 
greater units and, early in 1901, the greatest 
combine that the world has yet seen, the United 
States Steel Corporation, was formed. Schwab, 
former president of the Carnegie Steel Co., was 
made its president. No sooner had the new com- 
bine started to operate, however, than Schwab 
found his position an irksome one. He had ex- 
pected to be in supreme command of the big com- 
pany, and he found that he was not. Accustomed 
to absolute authority, Schwab chafed under the 
restraints of his position and on more than one 
occasion was on the point of resigning. 

In the fall of 1901 the late E. H. Harriman 
conceived the idea of organizing a merger of the 
Bethlehem Steel Co. and two or three other com- 
panies, and asked Schwab to negotiate the deal. 
It was never consummated, but Schwab himself 
purchased the Bethlehem Steel Co., paying for 
the stock $7,500,000. Shortly afterward, how- 
ever, realizing that his position as president of 
one large steel company and owner of a compet- 
ing concern was an ambiguous one, he asked the 
late J. P. Morgan to take the property off his 
hands at the price he had paid for it. This Mor- 
gan consented to. The banker later suggested 



U. S. Shipbuilding Co. Formed 7 

that the Steel Corporation should purchase the 
company, but opposition developed and the mat- 
ter was dropped, Morgan remaining the nominal 
owner. 

Shortly afterwards, or in the Spring of 1902, 
Lewis Nixon and others who were engaged in 
organizing a shipbuilding merger, came to Schwab 
with their plans, and he suggested that, to com- 
plete and round out their proposed company, they 
should obtain control of a steel company equipped 
for making ship plate. He called to their atten- 
tion that it would be easy to get Bethlehem, and 
they decided to accept his advice. 

So Schwab repurchased the property from 
Morgan and transferred it to the new concern, 
which was named the United States Shipbuilding 
Co. In exchange for the Bethlehem company he 
received $10,000,000 of each class of stock of the 
shipbuilding company and $10,000,000 of its 
bonds. 

United States Shipbuilding Company 

The United States Shipbuilding Co. was incor- 
porated on June 17, 1902, eight concerns besides 
Bethlehem Steel Ijeing brought into it. It had 
a capital of $20,000,000 of preferred stock, 
$25,000,000 of common stock, and $26,000,000 of 
bonds as well as the underlying indebtedness of 
the Bethlehem Steel Co. 

The total stock capitalization of all the com- 



8 The Story of Bethlehem Steel 

panies merged into the shipbuilding company was 
$19,800,000, so that it was obviously heavily loaded 
with water. Its organizers, in their prospectus, 
estimated that yearly earnings might be placed at 
well over $5,000,000. Lewis Nixon became its first 
president. 

A short life and a stormy one was the lot of 
the new venture. Hardly a year had passed be- 
fore it got into financial difficulties, and on July 
1, 1903, James Smith, Jr., was appointed receiver 
by the courts. 

In the mean time, or about April, 1903, Schwab 
had resigned the presidency of the Steel Corpo- 
ration, although he did not actually leave the office 
until somewhat later in the year. 

Eeceiver Smith, in his report to the court, 
severely scored the organizers of the shipbuilding 
company. He said that earnings had been grossly 
overestimated and pointed out that the actual 
profits of the combine for the first year of its 
existence had been less than half of the promised 
amount, or $2,495,590, of which sum Bethlehem 
Steel alone had earned $1,662,531. 

Mr. Smith also reported that the profits of the 
Bethlehem company did not necessarily benefit 
the company supposedly controlling it, as the di- 
rectors of the steel company were at liberty to 
decide whether they should pay out such profits 
in dividends or turn them back into the treasury 



U. S. Shipbuilding Co.'s Failure 9 

of the Bethlehem company for new construction, 
etc., and he found that all of Bethlehem's profits 
had been so used, the shipbuilding company being 
forced to rely on the earnings of its weaker sub- 
sidiaries to meet its liabilities. 

The receiver laid the responsibility for the 
failure of the combine largely at Schwab's door. 
He asserted that Schwab, as principal owner of 
the Shipbuilding stock, had great influence in the 
company, and he also found that, by the terms 
of the sale of the Bethlehem company, Schwab 
had practical dictation as to its directorate, so 
that, in refusing to pay dividends to the nomi- 
nally controlling company they might have been 
supposed to be carrying out his orders. Schwab, 
he said, was virtually the man behind the throne 
in both companies, although he was not on the 
directorate of either. 

On the other hand, Schwab denied, and still 
denies, any share of responsibility for the disas- 
trous end of the United States Shipbuilding Co. 
His claim is that he was merely the largest credi- 
tor of that concern and took no active part in its 
management. 

In justice to the present head of the Bethlehem 
Steel Corporation it should be stated that during 
the period of the shipbuilding company's exist- 
ence he was almost constantly ill. A victim of 
neuritis, he spent a considerable portion of his 
time abroad seeking relief, and so, whatever his 



V 



10 The Story op Bethlehem Steel 

powers regarding control of the company's affairs 
might have been, it is hardly likely that he exer- 
cised them to any extent. 

Bethlehem Steel Corporation Organized 

For some time it looked as if the failure of the 
combine would lead to long-drawn-out litigation, 
but eventually a compromise was agreed upon 
and a new company was formed to take over the 
several concerns that had gone to make up the 
shipbuilding company. This concern, the exist- 
ing Bethlehem Steel Corporation, was chartered 
under the laws of the State of New Jersey on 
December 10, 1904, with a capital of $15,000,000 
of common and the same amount of preferred 
stock, and $3,000,000 of bonds, subject to the 
prior lien of the original Bethlehem bonds. The 
stock of the corporation was exchanged for the 
bonds of the Shipbuilding Co., the new bonds be- 
ing offered to these same bondholders at 87i/2- 
The terms of exchange were as follows : 

Will pay 



Holders of $10,000 1st 
Mtge. U. S. Shipbuild- 
ing bonds 

If subscribing at 
87i^ $875 

Holders of $10,000 
Bethlehem collateral 
bonds 

If subscribing at 
871/4 $1,352.50 



Will receive 




New Pfd. 


Com. 


bonds stock 


stock 





$4,000 


$6,000 


$1,000 








$9,000 


$6,000 


$1,500 







Organization of Corporation 11 

The companies which went to make up the 
Bethlehem Steel Corporation were: 

Bethlehem Steel Co. This company's steel 
plant at Bethlehem was equipped to make steel 
rails and other products, but its output consisted 
largely of armor plate and munitions. It had 
an annual steel capacity of approximately 300,000 
tons of ingots. Its capitalization was $15,000,000. 

Harlan & Hollingsworth, $1,000,000 capital. 
Owned and operated a shipbuilding plant and dry 
dock, as well as a car-building shop, at "Wilming- 
ton, Del. 

Union Iron Works. Capital $2,000,000. Oper- 
ated a shipbuilding plant and dry dock, machine 
shops and foundries, at San Francisco, Cal. 

Samuel L. Moore & Sons, Corp. Capital $300,- 
000. Owned foundries and machine shops 
equipped for marine repair work at Elizabeth- 
port, N. J. 

Carteret Improvement Co. Capital $300,000. 
Owned unimproved real estate at Carteret, N. J. 

Eastern Shipbuilding Co. Capital $300,000. Op- 
erated a shipbuilding plant on leased property at 
Groton, Conn., opposite New London. 

Crescent Shipyard. Capital $300,000. Oper- 
ated a shipbuilding plant at Elizabethport, com- 
plementary to that of the Samuel L. Moore Cor- 
poration. 



12 The Story of Bethlehem Steel 

Bath Iron Works. $500,000 capital. Operated 
shipbuilding plant at Bath, Me. 

Hyde Windlass Co. Capital $100,000. Had a 
plant at Bath, Me., where it manufactured steam 
windlasses and other marine equipment. 

The Bath Iron Works and the Hyde Windlass 
Co. were sold in 1905, Bethlehem receiving for 
them about $350,000 in cash and $475,000 in pur- 
chase money bonds. In the same year the Carte- 
ret and Crescent companies were consolidated 
with the Moore corporation and, in 1907, the 
Eastern Shipbuilding Co. was sold. 

Charles M. Schwab, as already stated, had re- 
signed from the presidency of the United States 
Steel Corporation early in 1903. His intention, 
or so he intimated, was to retire from business, 
ill health being his excuse, but after spending 
some time in Europe he returned home much im- 
proved, able and anxious to throw himself into 
the battle of industry again. So when the Beth- 
lehem Steel Corporation was organized from the 
debris of the shipbuilding wreck it was natural 
that the former president of the Steel Corpora- 
tion, who was also the man principally interested, 
should be chosen as its head. 

Schwab Assumes Presidency 

Schwab's decision to assume the presidency of 
the Bethlehem Steel Corporation was an impor- 
tant one for its stockholders, as has since been 



Schwab Goes to Bethlehem 13 

proven. It was an important one for the people 
of Bethlehem, a statement which may be amply- 
proven by visiting that extremely prosperous 
community at any time. And, judging by the 
part that Bethlehem has played in the present 
war, it might not be too much to say that it was 
not without importance to the world. 

Once decided, Schwab did not do things by 
halves. He had not long completed the erection 
of a palace in New York at a cost of several mil- 
lions of dollars. But, like his former chief, i 
Andrew Carnegie, he believed that personal su- 1 
pervision was necessary to eminent success in the 
management of an industry, and he closed up the 
costly mansion and took up his residence in quiet 
Bethlehem, where he could be in constant touch 
with the operations of the Bethlehem Steel plant, 
the most important, by far, of the activities of 
the corporation. 

In December, 1904, the Bethlehem Steel Cor- 
poration employed 9,461 workers. It now gives 
work to approximately 60,000. Then the holding 
company for a small steel plant, and little else; 
to-day it is the second largest steel organization 
of the world, and the largest producer of war 
munitions. Created, as remarked above, frora 
the debris of a failed company, it is now paying 
30% on its common stock and earning many 
times that, being probably the most prosperous 



14 The Story of Bethlehem Steel 

of steel companies in the world, certainly in the 
United States. During the same time Bethlehem 
has changed from a somnolent town to a bust- 
ling, active and wealthy one. 

One thing was the cause of all these changes. 
It was the coming to Bethlehem of Charles M. 
Schwab. 



CHAPTER II 

When Schwab Went Down to Bethlehem — •Early Expansion 

WHEN Schwab went down to Bethlehem 
he found a gigantic task set before him — 
that of converting into a paying enter- 
prise the relics of the failed United States Ship- 
building Co. It was one that necessitated years 
of hard work and many disappointments, but the 
former Carnegie head threw himself into the job 
with all the ardor with which he had once man- 
aged the great business of the old Steel King. 

For years it was an uphill fight. But Schwab 
was determined to make the Bethlehem Steel Cor- 
poration rank big among the steel-producing con- 
cerns of the world. His ambitions for it had 
scarcely any limits. And to attain his end he will- 
ingly threw into the company the greater part of 
his fortune and for years struggled on with hardly 
any return. 

Schwab, it has been said, had two ambitions re- 
garding Bethlehem. One that the stock should 
have behind it assets of $1,000 a share, and the 
other that it should rival the great Steel Corpo- 
ration in the multiplicity of its products. In fact, 
Schwab saw in the Bethlehem Steel Corporation, 
poor a vehicle as it might have appeared to one 



16 The Stoey of Bethlehem Steel 

lacking his enthusiasms and his ability to realize 
on them, a basis for erecting such another steel 
company, if on a smaller scale, as he had out- 
lined to Morgan on the occasion of the Simmons 
dinner, in December, 1900, from which banquet 
was born the United States Steel Corporation. 

Schwab is one of those men who can dream and 
not make dreams their master. His enthusiasms 
are things to be reckoned with. A prominent 
banker of Bethlehem said to me in this connec- 
tion : 

"I came to Bethlehem shortly after Schwab 
did," he said. "Not long after my arrival I was 
invited to a dinner at which Schwab was a guest 
and he was asked to speak. During his talk he 
made certain statements about the future of the 
Bethlehem Steel Co. and of the community, which 
caused me a great deal of secret amusement. 
'This man,' I said to myself, 'is a dreamer; he is 
promising the impossible.' But I have lived to see 
everything that Schwab prophesied come true, 
and even more. I am converted. Whatever 
Charles M. Schwab says he will do, I know he 
will." 

The story of Bethlehem Steel is unquestionably 
the story of Charles M. Schwab. The success of 
the company has been his success, and no one 
other's. What Bethlehem is to-day is due en- 
tirely to the genius of Charles M. Schwab. He 



Rail and Structural Mills 17 

himself denies this and gives much of the credit 
to his assistants in the work, but it is so, never- 
theless. 

Some twenty years before the Bethlehem Steel 
Corporation was chartered the old Bethlehem 
Iron Co. had gone into the manufacture of armor 
plate and other war material, largely at the solici- 
tation of a member of the Cabinet of that period. 
When Schwab took charge of the plant he found 
that it was equipped almost exclusively for these 
purposes and that there was not enough demand 
from this source to promise continued earnings. 
The United States was not purchasing enough 
armor plate and similar products to support a 
company of the size of Bethlehem devoting all its 
energies to this end. So one of Schwab's first ac- 
tions was to set about the remodelling of the plant 
to manufacture commercial steel. 

In 1905 Bethlehem Steel took contracts from the 
United States Government aggregating $4,455,470. 
In 1906 this decreased to $4,056,062, and in 1907 
to $2,635,054, or not much more than half of what 
it had been in 1905. But in the meantime the 
company had been busy erecting a steel rail-mill 
and structural mills, the first of which began op- 
erations in the latter part of 1907 and the others 
shortly after. Bethlehem, for many years, has 
been an important producer of rails and one of 
the leading producers of structural material in the 



18 The Stoky of Bethlehem Steel 

country. Since the erection of the mills referred 
to, which incidentally involved the building of a 
new plant from the ground up, the company has 
gradually and constantly expanded its output of 
commercial material and is even now constructing 
a large merchant steel plant. 

Another handicap under which the new corpo- 
ration suffered was that the old shipbuilding com- 
pany, out of the ruins of which the Bethlehem 
Steel Corporation was formed, had accepted con- 
tracts for a number of ships, some of which were 
for the United States Government, at prices which 
foredoomed it to a loss. This necessitated the 
deduction from surplus shortly after the new com- 
pany began business of large sums to meet these 
losses, and they were further added to by the San 
Francisco earthquake, in January, 1906, which dis- 
turbed the labor situation in that city where, at 
the plant of the Union Iron Works, one of the 
Bethlehem subsidiaries, the ships were building. 

The Bethlehem Bonus System 
The enormous success of the Bethlehem Steel 
Corporation has been undoubtedly due in great 
part to the bonus system, of which so much has 
been written in the past year. This bonus system 
is nothing more or less than the setting of a cash 
premium on personal efi&ciency and endeavor. 
The Schwab plan diifers from most other so-called 
profit-sharing plans in that every individual com- 



Bonus Plan 19 

ing within its scope gets directly the fruit of his 
own efforts and gets it quickly. For the head of 
the company believes that the average man can- 
not become enthusiastic for a reward for applied 
endeavor a year or more ahead, nor will he give 
the best that is in him if his return is on a pro 
rata basis with the entire organization. 

The Bethlehem bonuses are paid monthly, veiy 
shortly after the salary checks are sent out, and 
so each man is constantly keyed up to the high- 
est pitch of efficiency of which he is capable. And 
payment is made for the work on which that par- 
ticular individual was engaged — and no other. 
This applies to each worker in the organization, 
with the exception of the executive officers, whose 
work covers the entire company and who must 
therefore be paid on the general results. 

Let us take a few instances of this bonus plan 
and how it is worked. The figures given, be it 
understood, are purely empiric. Suppose that the 
worker is the superintendent of a blast furnace 
and the average cost of converting ore into a ton 
of pig iron is one dollar. If, for one month, the 
superintendent in question succeeds in maintain- 
ing an average cost of 95 cents, he receives an ad- 
dition to his salary of one cent for each ton of iron 
produced. If he reduces the cost to ninety cents 
his bonus would increase progressively and be, 
say, 21/^ cents a ton, while if he reduced cost to 



20 The Story of Bethlehem Steel 

eighty-five cents his bonus would be, not three 
cents a ton but five. Thus each reduction brings 
still greater incentive to further effort. 

A worker on shell castings, for instance, is paid 
22 cents an hour and is given a job which should 
take five hours and on which his pay would be 
$1.10. If he got through the work in three hours 
his pay would be $1.10. That is, the saving in 
labor cost would come to him, the company gain- 
ing by increased production. 

Schwab has repeatedly remarked that he is not 
in business to make steel, but to make money for 
himself and the other stockholders of Bethlehem 
Steel. The manufacture of steel is merely the 
means to this end. This is exemplified by the 
manner in which he applies the bonus system to 
his salesmen. These men are paid not on the 
tonnage they sell, but on the profits that accrue 
to the company from the sales they make. This 
discourages the salesman from cutting prices to 
get business, encouraging him to use his wits to 
obtain the best prices possible in the market. Let 
us say that a certain steel product costs $20 a ton 
to produce and the market is $22 a ton. A and B 
are covering certain territories and A, in order 
to secure an order for 10,000 tons, makes a price 
of $21, while B, on another inquiry, refuses to cut 
prices and, by brisk salesmanship, sells 4,000 tons 
at $23; B's commission would be larger than A's, 



Bonus Plan - 21 

although A would have sold more than twice the 
tonnage that B sold. 

What results may be obtained by the bonus 
system can be illustrated by the results in a con- 
crete case. Some time before the organization of 
Bethlehem Steel Schwab had built in New York a 
palatial residence on West End Avenue. He told 
me that his monthly upkeep cost was around 
$4,500 a month. Finally he decided to apply to 
the management of this home the same plan by 
which he had made the steel company profitable, 
and, calling the superintendent of the property to 
him he told him that he had figured the monthly 
cost should not exceed so much, naming a certain 
figure. ''For every hundred dollars of cost below 
that I will pay you a bonus of so much," he said. 
The result has been, according to Schwab, that 
the total cost of running the property now does 
not exceed $1,600, yet the superintendent is mak- 
ing more money than he had ever hoped, more 
than many men in what are usually considered 
higher and more profitable positions, and the 
property is as well, if not better, managed, than 
ever before. Schwab simply gave the man the 
opportunity to earn all he could, and every man 
works best and most heartily under this urge. 

A few years ago Bethlehem Steel absorbed the 
Fore Eiver Shipbuilding Co. at Quincy, Mass., a 
concern that was a failure. Without changing 



22 The Story of Bethlehem Steel 

the men in charge, but simply by giving them the 
incentive contained in the bonus plan and by his 
own inimitable leadership, he succeeded in secur- 
ing net profits of not far from $1,000,000 in the 
first year in which the company was in his hands. 

Wonderful tales have been told of the enormous 
bonuses paid to officials of the company under 
the plan. They are probably exaggerated, but in 
1914, during which year Bethlehem Steel earned 
about 321/0% on its common stock E. G. Grace, now 
president of the corporation, drew down a bonus 
of over $200,000, so that it is not at all improb- 
able that his bonus in 1915, when some 1121/2% 
was earned, was near the $1,000,000 with which he 
has been credited. 

Schwab believes in giving every man the oppor- 
tunity to make good, and seeing that if he does 
he realizes quickly and in cash. Every man in 
the plant who comes under the operations of the 
bonus plan has the chance to show his ability, and 
if it be above the usual, if he has initiative and 
courage, he is well in line for advancement. For 
the work of each individual, by the very necessi- 
ties of the plan, is watched carefully. This opens 
up for each ambitious man the highest possible 
returns and rewards. 

One disadvantage of the plan has been urged 
— that those sharing in it are inclined to drive 
those under them, so as to realize its benefits. 



Expansion ^ 23 

If this were true the disadvantage would go far 
to offset the good results of the plan, but as the 
plan has been worked out so that it now applies 
even to the majority of the common laborers in 
the plant, it can hardly work a hardship to any- 
one. That it is extremely popular with the men 
is proved by the fact that every worker who joins 
the Bethlehem Steel forces is anxious to have 
himself put in line to receive its benefits. 

It is hardly necessary to point out that the bonus 
plan, which makes it necessary to keep a careful 
check on the work of each and every employe of 
the big plant at Bethlehem, as well as of all the 
other subsidiary companies, also serves to reveal 
quickly what men are failing to keep up to what 
should be expected of them, and so the inefficient 
or idle workers are soon weeded out of the or- 
ganization. 

Schwab's Expansion Plans 

Schwab began his plans for the expansion of 
the Bethlehem plant as soon as he took charge 
of it. For several years previous a gradual ex- 
tension and modernizing of the old plant had been 
going forward, but the new commander in chief 
adopted a somewhat changed policy, beginning 
immediately the erection of new and complete 
steel-making units. About 250 acres of land ad- 
joining the then existing plant was purchased and 



24 The Story of Bethlehem Steel 

the new furnaces, rolling mills, etc., were con- 
structed thereon. 

In the year 1905 a total of $2,013,732 was ex- 
pended for new construction work. $2,990,765 
had been appropriated for this purpose but the 
year's program was not completely carried out at 
its close. Other extensions carried out by the 
Bethlehem Steel Corporation during the year at 
plants of other subsidiaries called for a total ex- 
penditure of $428,750, so that the corporation 
spent altogether for such purposes $2,442,482. 

As the corporation was not in a particularly 
strong financial condition it was necessary to 
finance these operations by the issuance of bonds, 
and so a new issue of $12,000,000 five-per-cent., 
twenty-year first-extension mortgage gold bonds 
was created. At about the same time the 
$3,000,000 collateral-trust sinking-fund six-per- 
cent, bonds were called in. The new bonds were 
not actually issued until the following year. 

The financial report of the corporation for 1905 
showed gross sales of $14,554,117, and a total in- 
come of $3,468,802, of which $153,673 was derived 
from investments and rents. After interest 
charges and allowances of $295,671 for probable 
loss on the construction of the ships already re- 
ferred to, with $400,000 depreciation a balance of 
$2,365,399 was left for the stock. Preferred divi- 



Lean Yeaes 25 

dends of $521,780 were paid, and a net surplus 
of $1,843,619 carried to profit and loss. 

The years 1906 and 1907 were hard ones for the 
new corporation, notwithstanding the fact that 
they were unusually prosperous ones for the steel 
trade generally. Bethlehem, it should be remem- 
bered, was at that time engaged almost entirely in 
the making of certain specialties, and its rail and 
structural mills, which later were very profitable, 
had not even started operations until around the 
close of 1907. In 1906, too, severe losses were oc- 
casioned, as already explained, by the San Fran- 
cisco earthquake. 

In 1906 the corporation reported net manufac- 
turing profits of $1,859,353, less $647,193, the es- 
timated loss on the construction of ships taken by 
subsidiaries before its incorporation. Other in- 
come was $152,015, the total income being $1,364,- 
175. Interest charges amounted to $601,426, leav- 
ing a balance of $762,749. After the payment of 
$894,480 preferred dividends a deficit of $161,323 
was shown for the year. From the previous sur- 
plus of $1,843,620 reserves for probable other 
losses, depreciation, etc., were deducted to an 
amount of $1,118,467, so that the actual profit and 
loss surplus at the year's end was only $593,421. 

In 1907 net income was $2,638,957, of which 
$67,705 was derived from sources other than the 
manufacture of steel. Interest charges were 



26 The Story op Bethlehem Steel 

$1,020,168, leaving a net balance for dividends of 
$1,618,789. 

Only $111,810 was paid in dividends. These had 
been declared towards the close of 1906. And 
from early in 1907 until 1913 there was not a 
single cent of dividends distributed to Bethlehem 
Steel stockholders. 

In 1907 Schwab adopted, and followed for 
years, a policy of the most stringent conservation 
of profits, using these for expansion. Although 
a large part of his own fortune was invested in 
Bethlehem Steel, he refused to consider the ques- 
tion of dividends. The difficulties that the com- 
pany met with in its early years had convinced 
him that he could not eat his cake and have it, and 
that if he wanted the corporation to be such an 
organization as he had planned he would have to 
sink back into new construction all earnings, 
awaiting for returns until its position was unas- 
sailable and there need no longer be any fear of 
paying, and paying liberally. 

Ploughing Back Earnings 

It was to the undeviating following out of 
this policy that Bethlehem Steel's earnings have 
grown so enormously in recent years — for al- 
though the huge profits of 1915 were largely at- 
tributable to the war in Europe and the conse- 
quent demand for the company's products, earn- 



Rail and Structural Mills Completed 27 

ings for several years previous had been excel- 
lent, and it was due to this very conservation of 
profits that Bethlehem was in a position to take 
full advantage of the war demand and to reap 
the benefits therefrom. 

Up to and including 1907 dividends had been 
paid as follows on the preferred stock: 1905, 
31/2%; 1906, 6%; 1907, three-fourths of 1%. 

Although the corporation had not long before 
disposed of $12,000,000 of bonds, chiefly for the 
purpose of new construction, in 1907 it was again 
found necessary, to carry on the new construc- 
tion program, to issue $2,500,000 of notes and at 
the close of that year the company showed a 
funded debt of $21,366,000, while its total surplus 
was only $2,100,000. 

But meantime the extension policy was being 
vigorously pushed, the annual report showed that 
nearly $6,000,000 had been spent in carrying it out 
during the twelve months, while in the three years 
then ending a total expenditure of $12,960,993 
had been made. The benefits of this new con- 
struction first began to make themselves felt to- 
wards the close of 1907 when, on September 3, 
the newly completed rail mill was put into oper- 
ation, rolling 33,754 tons before December 31. 
The new structural mill started to produce on 
January 8 the following year, while a second 
structural mill was finished in the summer of 1908. 



28 The Story of Bethlehem Steel 

Hard times were experienced in the steel trade 
in 1908, following the panic year, and Bethlehem 
suffered with the rest. Total net income was 
$2,192,355 and the surplus after charges and de- 
preciation was $366,864. No new bonds or notes 
were issued during the year and $1,509,725 was 
spent on capital account, making the total thus 
spent since the company's organization up to the 
end of 1908 close to $14,500,000. 

During 1908 the Union Iron Works absorbed the 
San Francisco Dry Dock Co., which owned three 
floating and two graving docks. This was merely 
a dock company, having no facilities for repairs, 
and its merger with the Union naturally worked 
to the advantage of both. For the property of 
the Dry Dock Co. $312,500 was paid in cash and 
$1,000,000 in bonds paying 6%, and in addition an 
underlying debt of $500,000 in 5% bonds was as- 
sumed by the purchasing company. This was 
the first step in the expansion of the Bethlehem 
Steel Corporation by purchase. 

Eeturning prosperity began to make itself felt 
by Bethlehem Steel in 1909, when earnings were 
$2,836,593 and $800,811 was carried to surplus 
after all charges. Perhaps the best indication of 
the betterment was to be found, however, in the 
fact that the corporation closed orders to a 
total of $28,696,517 during the year, as against 
$14,458,998 the previous year, and that orders on 



Going Into Debt 29 

the books at the conclusion of the two periods 
were $7,592,503 for 1908 and $14,073,834 for 1909. 

Meantime Bethlehem Steel was going more 
and more heavily into debt to erect new plants. 
In November it issued $7,500,000 of 6% gold 
notes, part of which was put out for the purpose 
of redeeming the older issue of $2,500,000, while 
the remainder was to be used for new construc- 
tion. This brought the total funded debt of 
Bethlehem up to $28,070,267 on Dec. 31, 1909. 

One of the new improvements, or additions, 
planned was the construction of Bessemer con- 
verter to be used in conjunction with the open- 
hearth furnaces in producing steel by the so-called 
duplexing process. Additional open-hearth capac- 
ity was also decided on and the work of building 
the furnaces started during the year. Nor, while 
attention was centered upon the steel plant, were 
the other subsidiaries entirely forgotten. The 
car plant of the Harlan & Rollings worth com- 
pany was extended materially. 

Early in 1910 Bethlehem Steel made an impor- 
tant contract with the Didier-March Co., a Ber- 
lin concern, for a supply of coke for twenty years, 
the steel company having the option of purchas- 
ing the coke plant at the expiration of the con- 
tract time. The daily supply of coke contracted 
for was 2,000 tons, although the steel company 



30 The Story of Bethlehem Steel 

had the right to demand a greater, or accept only 
a smaller, supply if trade conditions warranted. 

Early in 1910, also, Bethlehem Steel succeeded 
in closing a contract with the Government of 
Argentina for armor plate and other naval 
material amounting in value to approximately 
$10,000,000. 

In the company's report for 1912 we find the 
statement that the construction program is about 
completed with the work finished during the year, 
or nearing completion at its close. Obviously a 
drastic change in plans followed the writing of 
the report, as Bethlehem's expenditures for new 
construction since it was written have completely 
dwarfed all that went before. 

Earnings in 1910 were $4,343,862 and the net 
surplus for the year $2,001,612. These were the 
largest earnings so far reported by the company 
and they brought the final profit and loss surplus 
at the close of the year to $5,269,688. 

But 1910 earnings were exceeded in the year 
that followed, as indeed, the company has set a 
new record for earnings every year since. The 
gain in 1911 was perhaps all the more surpris- 
ing as the year was far from being a prosperous 
one for steel companies generally. Net earnings 
of the Bethlehem Corporation were $4,579,565, 
and the surplus after charges $2,038,979. 

In 1912 earnings again reached a new top level. 



Chile Ore Contract 31 

being $5,114,440, with a surplus of $2,063,640. 
The corporation increased its funded debt during 
the year by the issuance of $14,200,000 first lien, 
refunding mortgage bonds, at the same time retir- 
ing its short-time obligations amounting to $10,- 
000,000. The Harlan & Hollingsworth Corporation 
also issued $450,000 of bonds and, at the end of 
1912 the total funded debt of Bethlehem and its 
subsidiaries was $32,441,533. 

An Epoch-Making Contract 

About the end of 1912 Charles M. Schwab made 
a trip to Europe and while there closed a deal 
that is likely to have a great and lasting effect 
upon the future of the company. This was the 
obtaining for Bethlehem of the Tofo Iron Mines, 
in Chile, supposed to contain, at the lowest esti- 
mation, one hundred million tons of iron ore. 
When Mr. Schwab announced the purchase he 
said that the ore showed an iron content of 66% 
per cent. Actual yield from what ore has been 
used shows a content of over 67%. The impor- 
tance of this supply of ore, possibly the richest 
known deposit of its size, may perhaps be real- 
ized when it is considered that most of the ore 
of the Lake Superior region has an iron content 
of around 511/2% and that every change of a 
single point in the metallic content means a de- 
cided difference in the cost of producing iron 
therefrom. The contract provided that Bethle- 



32 The Story of Bethlehem Steel 

hem Steel should mine not less than 1,000,000 tons 
of ore a year, paying for all ore taken out of the 
ground a royalty of 121/2 cents a ton, besides a 
fixed annual payment of $200,000, whether any 
mining was done or not. 

Dividends on the preferred stock were resumed 
in 1913, the rate established being 5%. Earnings 
this year were $8,752,671 and the net applicable 
to the stock $5,122,703. 

The important happenings of this year, in the 
way of expansion were the purchase of the Fore 
River Shipbuilding Co. of Quincy, Mass., and of 
the Titusville Forge Co. of Titusville, Pa. By 
the purchase of the first-named concern Bethle- 
hem was put in a position to build, on the Atlan- 
tic seaboard, battleships completely armored and 
equipped. The Fore River plant, with its ship- 
building facilities, complemented and rounded 
out the armor-plate and munitions plants at Beth- 
lehem. 

In 1914 earnings reached $9,649,668, and net 
profits on the stock were $5,590,020. Notwith- 
standing this it was not until after the close of 
the year that Mr. Schwab and his associates de- 
cided to restore the full 7% rate on the preferred 
stock. Although earnings were largely in excess 
of the amount required for the preferred dividend, 
and a handsome balance would have been left 
even if a small disbursement had been made on 



Big War Profits 33 

the junior issue, the policy of returning all prof- 
its possible to expansion was still being followed, 
nearly every year seeing from $4,000,000 to 
$6,000,000 thus expended. 

Bethlehem's large earnings in this, the year 
when the Great War started, and when all Ameri- 
can industry was halted and steel-company prof- 
its vanished, can only be explained by sales of 
war material both before and after the beginning 
of hostilities. Early in the year several big guns 
for Germany were completed and towards its close 
orders from the Allied Powers, then at grips with 
Germany, began to come in. 

Yet it was not until the following year that the 
big influx of munitions orders came to this coun- 
try. Bethlehem, the best-equipped of all Ameri- 
can concerns to make shells, guns and other death- 
dealing machines, naturally benefited more than 
any one else. The American Krupps is reputed 
to have actually closed contracts for well over 
$350,000,000 of such material, and this figure is 
probably correct. 

After paying all charges Bethlehem Steel, in 
1915, was able to report earnings on its stock of 
$17,762,813. This was sufficient to pay the pre- 
ferred dividend and to leave a balance of over 
$112 a share on the common stock. 

The war had put Bethlehem in the millionaire 
class ! 



CHAPTER III 

Bethlehem and the War Stock Boom^Policy of Conservation 
OF Profits Adds to Value of Securities. Extension by Con- 
struction AND Absorption — Offers to Buy Control. 
The Question of Value. 

JUST about a year ago, in a world war-mad, 
the New York Stock Exchange was the scene 
of the greatest ''boom" it had ever known, 
the boom in the so called ''war brides." The flood 
of munitions orders released by the allied powers, 
and its effect upon the profits of munition and other 
plants capable of being turned into munitions 
factories, was just beginning to be realized; and 
there was witnessed an enormous demand for the 
securities of such concerns, such a vast wave of 
buying, that many securities, formerly neglected, 
almost forgotten in the trading of more peaceful 
times, climbed upward to dizzy heights of value. 

First and chief of these was Bethlehem Steel. 
Bethlehem was the first American company to get 
a "war order." Late in 1914 Charles M. Schwab 
went over to Europe and brought back with him 
contracts for about $50,000,000 of guns. Later 
more orders, some of them larger, were placed 
with the company, which up to that time had never 
done a year's business of as great a gross as one 
of these contracts, and the eyes of the investing 
and speculating world began to turn toward 
Bethlehem common. 



The Boom in Bethlehem 35 

In 19Q7 Bethlehem Steel common sold as low as 
$8 a share — and it is likely that this price did not 
discount its actual value by a great deal. In 1913 
and 1914 it sold, most of the time, around $30, and 
was not regarded with great favor even at that 
level. But in 1915, taking its legitimate place in 
the van of the war stocks, it advanced by leaps and 
bounds to $600 a share, while conservative in- 
vestors, who had never seen a non-dividend pay- 
ing stock sell at such a price — one that seemed to 
be enormously inflated — held their breaths and 
awaited the crash they deemed inevitable. 

Bethlehem Steel common, once liberally water 
soaked, if not, indeed, altogether composed of that 
fluid, was having real assets, cash assets, put be- 
hind it at an unprecedented rate. Of the two bil- 
lions of dollars, or so, of guns and ammunition 
that the Allies had ordered here, the company had 
taken three hundred millions or more. And 
Bethlehem, be it remembered, had been for thirty 
years, an ordnance company. The business was 
not a new one to its management, as it was to those 
of many other companies. These orders repre- 
sented profits, sure and large. 

It was this that caused the boom in Bethlehem. 
But even had the war not occurred, it was in- 
evitable that, sooner or later, the stock would have 
sold at high figures, for it had, at the end of 1913, 
assets justifying far higher prices than were then 



36 The Story of Bethlehem Steel 

offered for it, and it had one asset, intangible but 
more valuable than all the rest, the leadership of, 
and the organization created by, Schwab. 

As far back at 1913 I expressed the opinion that 
Bethlehem common would one day sell at $300 a 
share. This opinion, naturally, was not based 
upon the expectation of war profits, which made it 
fulfil itself far earlier than I had expected. But 
I believe, that war or no war, Bethlehem, would 
have sold at that level, because I realized vaguely 
what were Schwab's plans for Bethlehem, how he 
was carrying them out by putting earnings back 
into new construction, thereby creating a surplus 
of assets which was bound to affect the company's 
earning power, and therefore its stock value, in 
the future. In 1913 Bethlehem's assets behind its 
common stock were well above the amount of stock 
outstanding, yet Schwab, although earnings of the 
company might have been held to justify the pay- 
ment of dividends, continued turning profits into 
new assets. 

Had attention been directed to Bethlehem before 
the war the analytical investor would have quickly 
realized its value. That the stock was overlooked 
is proven by the fact that, in the years 1913-14 its 
net earnings after deductions of all kinds, repre- 
sented approximately 100% of the selling price of 
Bethlehem Steel common. 

The high and low levels for the security in the 



Why the Stock Was Neglected 37 

twenty-four months of 1913-14 were 46% and 25, 
but the general level was around $30 a share. In 

1913 Bethlehem Steel reported a profit of $27.50 
for each share of common outstanding, while in 

1914 this was increased to $32.60 a share, an aver- 
age of $30.05. I can think of no other company- 
making public the record of its operations and its 
balance sheet, the stock of which sold continuously 
so much out of proportion to its earnings. 

The principal reason for the failure of Bethle- 
hem stock to respond to its large profits was, of 
course, the common knowledge of the fact that 
Schwab was determined not to pay any dividends 
until the company was so solidly built up and its 
future, so far as was humanly possible, so assured, 
that dividends, once started, would only be changed 
to a higher rate, and never passed. This meant that 
to purchase Bethlehem was to wait a long time for 
a return on your investment — but the return 
promised was well worth the waiting for. 

As it happened the wait was not too long. The 
war came, and brought unexpected profits, and, 
early in 1916, a dividend of $30 a share was de- 
clared. 

Up to the close of 1913, or seven months before 
the war, Bethlehem Steel had put $40,000,000 into 
new construction, and it had assets behind each 
share of its common stock well over $200. But 
construction went merrily forward, except for a 



38 The Story of Bethlehem Steel 

temporary stoppage during the severe financial de- 
pression in the first months of the war, and at the 
end of 1915 Bethlehem reported net assets behind 
its common stock of $310 a share. Up to the pres- 
ent the total amount expended for new construc- 
tion is $69,000,000, or 4% times the amount of 
common stock outstanding. Bethlehem is greatly 
undercapitalized ! 

And still the building program is not completed. 
The company is now spending $1,500,000 each 
month for the erection of plants — it does not spend 
more because it can't get more men to do the work 
— and its directors have approved appropriations 
to a total of $70,000,000 to be expended within the 
next three years. This will mean so much more 
earning power and value placed behind the com- 
pany's securities, for every cent to be spent will 
be taken from earnings. 

Shylock, asked if his gold and silver were ewes 
and rams, replied, ''I make them breed as fast.'^ 
Schwab might say this of Bethlehem earnings. 

That even these immense expenditures do not 
satisfy the ambitious plans of the Chairman of the 
Board of Bethlehem Steel is shown by his action 
when Eugene G. Grace, president of the company, 
handed him the memorandum of the proposed ex- 
tensions, with their cost ; Schwab smiled and wrote 
across the paper: ''I won't be quite satisfied until 
this grows to $100,000,000." 



Plans for Export Trade 39 

Through its recent purchase of the Pennsylvania 
Steel Co. — of which more later — Bethlehem Steel 
obtained control of the Maryland Steel Co., which 
owns and operates a shipbuilding plant and rail 
mill at Sparrows Point, Maryland. The location 
of the plant is without peer in regard to foreign 
trade advantages. It is possible to ship to it, at an 
extremely low freight charge, the rich Mayari ores 
from Cuba which it now uses — I understand that, 
in normal times, this ore can be brought over for $1 
a ton, with chartered vessels and the rate will be 
materially lowered when Schwab builds ships 
specially for the purpose — and will also be able to 
use the ores from the Tofo mines, in Chile, now be- 
ing exploited by the Bethlehem Steel Co. In at- 
tempting foreign markets the Sparrows Point 
plant will not be handicapped by return freights 
on finished material to the seaboard, for it is right 
on tidewater — a double saving — and it will there- 
fore have an "edge" of $1.50 a ton or more on 
every competitor in the United States. 

More, steel may be shipped from the Maryland 
plant to all points on the Atlantic coast of the 
United States at a lower freight rate than from 
Pittsburgh or any other steel center. It can be sent 
in barges to New York, Philadelphia, Boston and 
other seacoast cities, thus giving the plant the 
benefit of a water rate as compared with a rail 
rate. And, in steel competition, freight rates are 
more than half the battle. 



40 The Story of Bethlehem Steel 

With Schwab guiding its destinies Sparrows 
Point will become a great steel center. Within the 
next three or four years from $25,000,000 to 
$30,000,000 will be spent there to make it so. Al- 
ready 1,000 acres of land have been acquired for 
extensions and a big tin plate plant, the first item 
of new construction, is in course of erection. Later 
a battery of by-product coke ovens will be built. 
Still later, it is likely, a structural mill for making 
the ''Bethlehem section," and possibly plants for 
the manufacture of wire, tubes and other products 
— for Schwab plans to make every line of steel 
eventually. 

Many years ago, in December, 1900, Schwab 
told, in a speech, his dream for a steel company. 
Out of this speech, among the listeners to which 
was the late J. Pierpont Morgan, was born the 
great United States Steel Corporation. But 
Schwab is now realizing that dream for himself 
with Bethlehem Steel as his instrument. The ex- 
penditure of $70,000,000 recently authorized, will 
go a far way towards making Bethlehem the com- 
pany of which he spoke then. 

Bethlehem has been the magnum opus of 
Schwab's life. It has been, in so far as corpora- 
tion can be, an expression of the man himself. He 
nursed it through its infancy, guided it during its 
adolescence, and now that it is, for its size, the 
richest — it is one of the largest — steel company 



Schwab's ''Luck" 41 

in the world, that he should regard its success with 
pride is not alone justifiable but entirely natural. 
He has made it; established its foundations se- 
curely. "I am the old man of Bethlehem, the 
younger men must now take charge," he says. 
Nevertheless, he is the real man at the helm today. 

When Schwab became President of the United 
States Steel Corporation, the great billion dollar 
company, at its organization in 1901, and when, 
two years later, he resigned, there were many who 
regarded his success as entirely a matter of luck, 
attributing it to the fact that he happened to get 
in the good graces of Andrew Carnegie, and the 
story of Carnegie's attention being attracted to 
him by his singing, was told to illustrate this luck. 
As a matter of fact Carnegie was too shrewd a 
man to be influenced to any great extent in that 
way. He himself admits that he owed his great 
success largely to Schwab's ability. 

But the world at large did not think so then. 
And Schwab was keenly aware of this, so when he 
took charge at Bethlehem he was determined to 
demonstrate that he had the ability to make a great 
steel company out of rather unpromising material 
— and he has done it. 

How much of his private fortune Schwab ac- 
tually put into Bethlehem since its organization 
may never be known. In the company's early 
days, before its credit was robust, he personally 



42 The Story of Bethlehem Steel 

endorsed every note it issued — and it had at one 
time $7,500,000 of notes outstanding. He himself 
purchased one-third of the total of every bond 
issue, and continued to do so until about five years 
ago, when it was no longer necessary. More than 
this, from time to time he lent large sums of money 
to Bethlehem to tide it over temporary emerg- 
encies, probably millions in all, and never even 
demanded the company's note for these amounts. 
Bethlehem was his to stand or fall by. No other 
stockholder ever came to its assistance. Is it any 
wonder, then, that he feels as he does about Bethle- 
hem Steel? He had borne the burden; to him is 
due the credit. 

Had Schwab cared to take his profits from 
Bethlehem he might have done so years ago by 
paying dividends, amply justified by earnings, on 
the preferred stock. But he refrained. In 1915, 
when the company was the focal point of the finan- 
cial world, he had many offers to dispose of his 
holdings at exceedingly attractive prices. One of 
these was from Grerman interests — possibly the 
German Government itself — another from power- 
ful New York bankers and capitalists. 

These offered Schwab $200 a share for 90,000 
shares of preferred and $600 a share for 60,000 
shares of common stock, or $54,000,000 in all. 
This gigantic offer naturally gave the head of 
Bethlehem some pause for consideration, but never- 
theless he refused to accept it. 



Schwab Eefuses $54,000,000 43 

*'I asked for time and went home to talk it over 
with Mrs. Schwab," he said. *'I told her of the 
offer and requested her opinion." 

"She did not hesitate for ,a minute, saying, *I 
would never know what to do with all that money, 
and you could not live without your work.' " 

' ' That settled it. I told the bankers that I would 
not sell." 

When Schwab told me that Bethlehem would 
spend at least $70,000,000 within the next three 
years or so in new mills, he also stated that every 
dollar would be taken out of earnings, no new 
financing being contemplated for the purpose. 
And added with emphasis that every last cent 
would be used for increasing the company's out- 
put of commercial steel. 

"I will spend nothing more for munitions," he 
said. 

This brings us to a subject that is of immense 
importance. Bethlehem's place is among steel 
companies proper, and not considered as a muni- 
tion company. 

For years steel men have regarded Bethlehem, 
not as a steel company, but as an ordnance con- 
cern — the American Krupp's. And there has been 
a good deal of reason for this, for Bethlehem, al- 
though producing a considerable tonnage of steel, 
has used much of it in manufacturing guns, armor 
plate and projectiles. And the greater part of 



44 The Story of Bethlehem Steel 

its earnings have been thus derived. But for many 
years past Bethlehem has been slowly and surely 
working on a steel program proper. A program 
outlined from the very day that Schwab took con- 
trol, although he was unable to put it into effect as 
he would have wished at the beginning because of 
financial reasons. 

It will be remembered that the first important 
act of the newly organized Bethlehem Steel Cor- 
poration was to start the erection of a rail mill at 
Saucon, and of a structural mill at the same place. 
The structural mill has been one of Bethlehem's 
great successes. 

Early in the present century Henry Grey invented 
a structural steel section which he offered to every 
important steel mill in the country. It was a design 
for making in a single piece the big beams used in 
erecting buildings, instead of riveting together a 
number of different pieces of steel. But Grrey's 
invention was not thought much of. The old way, 
most steel men thought, was the best, could not be 
improved upon, and so Grey's section was left on 
his hands. 

Schwab, however, had been impressed by the de- 
sign, and, no sooner was he in the saddle in 
Bethlehem than he negotiated with the inventor 
and purchased the patents to the new beam. It 
was to manufacture this that the big structural 
mill at Saucon was erected. 



Success op ''Bethlehem Section" 45 

I'he wisdom of his course has been proven. Since 
the first day on which Saucon mill began to roll 
what is now known commonly as the Bethlehem 
section it has been operated at full capacity with- 
out a single break. This through some of the most 
serious depressions from which the steel industry 
has suffered, periods during which every other 
structural mill in the country was operating at a 
very low percentage of full. 

The popularity of the Bethlehem section is now 
established. And its production will be increased. 
Already the demand warrants this course. It has 
no competitor, and Bethlehem is the only concern 
able to make it. 

During the past three or four years Bethlehem 
Steel has expanded enormously, not alone by the 
expenditure of money for new construction but by 
the acquisition by purchase of other companies. 
The first important purchase was that of the Fore 
River Shipbuilding Corporation, at Quincy, Mass. 
The Fore River Co. had been struggling along 
under difficulties for years, and had at the time of 
the acquisition contracts for two battleships for 
the Government of Argentina on which there was 
promise of a big loss. Schwab acquired control 
for Bethlehem at a figure around $700,000, and 
under his skilful guidance, succeeded in repaying 
the purchase price out of the operations of the first 
year following the sale. The Titusville Forge Co. 



46 The Story of Bethlehem Steel 

was purchased about the same time as the Quinoy 
company. 

Next came the deal with the Schneider interests, 
of France, giving Bethlehem control of the rich 
and vast ore fields of Chile. Then came the war 
and with it Bethlehem became rich, and has ex- 
panded more rapidly since. 

In 1915 the Detrich & Harvey Machine Co., of 
Baltimore, was purchased. Early this year came 
the purchase, by the Union Works, a Beth- 
lehem subsidiary, of the Alameda plant of the 
United Engineers Works, at San Francisco, and 
later Schwab acquired by purchase the Baltimore 
Sheet & Tin Plate Co. Finally came the biggest 
deal of all — ^the purchase of Pennsylvania Steel. 

A few short years ago if it had been stated that 
Bethlehem Steel was buying Pennsylvania it 
would have been regarded as a case of the tail 
wagging the dog, for Pennsylvania Steel has long 
been one of the most important steel producing 
organizations in the country, with large plants at 
Steelton and Lebanon, Pennsylvania, and the plant 
of the Maryland Steel Co., at Sparrows Point. The 
company also is rich in its ore holdings, both in 
Cuba and at home. But within the past eighteen 
months the financial world has come to regard 
Bethlehem with something even more than respect. 

A possibly unconscious tribute to Bethlehem's 
financial strength was paid it by the leading finan- 



The Story of Bethlehem Steel 47 

cial paper which, discussing the deal, suggested 
that if the minority Pennsylvania shareholders 
were not inclined to accept bonds for their hold- 
ings, Bethlehem would pay them for the $4,000,000 
or so of stock that they owned out of its ''petty 
cash." Such a statement was not allowed to pass 
without comment from the humorous paragraphers, 
but, as the paper later replied, "Bethlehem can 
afford it." It was all a matter of comparison. 

Pennsylvania Steel had $20,560,800 preferred 
and $10,750,000 common stock, and for this Beth- 
lehem agreed to pay $23,460,800, or par for the pre- 
ferred and $27 for the common. The total amount 
agreed on, however, was $31,960,800, as $8,500,000 
cash lent the Pennsylvania Steel Co. by the rail- 
road company of the same name was to be re- 
funded by Bethlehem. 

Besides the stock capitalization bonds outstand- 
ing of Pennsylvania and its subsidiary companies 
total $25,214,000. To take up these securities a 
new issue of 5% Bethlehem Steel Co. bonds has 
been authorized. 

By the purchase of Pennsylvania Steel Bethle- 
hem, at one fell swoop, doubled its capacity for 
making pig iron and steel, increased the variety 
of its products, provided itself with a tidewater 
plant and made itself the biggest shipbuilding con- 
cern in America. 

The combined pig iron capacity of the two com- 



48 The Story of Bethlehem Steel 

panies is about 2,300,000 tons a year, and when 
furnaces to be built are ready, will be about 
4,000,000 tons. The combined steel ingot capacity 
is 3,500,000 tons, and the capacity for finished steel 
something over 2,000,000 tons. 

By the purchase of the Maryland Steel plant 
Bethlehem increased to five the number of its ship- 
yards, as follows : Maryland Steel, Harlan & Hol- 
lingsworth. Union Iron Works, Samuel L. Moore 
& Sons and the Fore River Shipbuilding. On 
March 31, just after the deal was put through, it 
was estimated that there were building in Ameri- 
can yards 901,000 tons of ship tonnage, and that 
341,000 tons, or 38% of this total, were building at 
the five plants named. 

The figures given above illustrate forcibly the 
growth of Bethlehem since 1904. In that year the 
company's pig iron capacity was 120,000 tons. In- 
cluding the blast furnace capacity of Pennsylvania, 
it is now 2,300,000! 

In 1905, the Bethlehem Steel Oorporation em- 
ployed about 9,000 men. It now employs, includ- 
ing the Pennsylvania Steel workers, nearly 60,000. 
A year ago there were between 13,000 and 14,000 
men employed at South Bethlehem alone. Today 
there are 24,000. 

The plant of the Bethlehem Steel Co. at South 
Bethlehem, the American Krupp's works, covers 
an area of 600 acres, stretching three miles along 



Big and Little Guns 49 

the shore of the Lehigh River. This does not in- 
clude the new plant at Reddington, a nearby town ; 
and the company has 1,000 more acres of land 
which will later be built on. 

At this plant there are now being turned out 
complete fully 25,000 shells of different sizes daily. 
This figure refers entirely to shells made entirely 
there, as the plant is shipping some 15,000 shells, 
many of the parts of which were sublet to other 
concerns. 

The Bethlehem gun shops make almost every 
kind of gun used from the small one-pounder, fir- 
ing a one inch bullet (diameter), to the big navy 
rifles used on the great British super-dreadnoughts 
and firing a shell of a diameter of sixteen inches, 
with a range of twenty miles. 

In the armor plate plant is made every variety 
the shape of armor plate, for purposes both peace- 
ful and warlike, for bank vaults and battleships. 
At this plant has been made the protective armor 
for vessels of many nations. In 1914, at the out- 
break of the war, it was completing an order for 
armor plate for a big Greek warship — it was also 
making the guns for this vessel at its big gun 
plant — which was being constructed in Germany. 
The Germans took over the ship — but they did not 
get the armament. 

What is the value of Bethlehem stock? This 
question, after all, is the one of paramount inter- 



50 The Story of Bethlehem Steel 

est to investors. Is it worth the price, between 
$500 and $600 a share, at which it is selling? 

My personal belief is that Bethlehem common 
has an inherent value not far from $1,000 a share. 

When Bethlehem Steel was incorporated its 
common stock was all water. This is indisputable. 
But since that time $60,000,000, in round figures, 
has been spent for new construction — to the end 
of 1915. With due allowances for depreciation 
this represents actual addition to plant value of 
over $300 a share, and to this must be added addi- 
tions to working capital made since 1904. An 
analysis of the company's balance sheet of Dec. 
31, 1915, showed net assets for the common stock 
equivalent to $310 a share. 

Since the beginning of 1916 Bethlehem Steel has 
spent at the rate of about $1,500,000 a month on 
new construction, and will continue to spend at 
this rate at Bethlehem alone until the end of 
the year. This does not include recent appropria- 
tions of $70,000,000, already referred to, for con- 
struction at all the plants during the next three 
years. 

By the end of 1919, then, Bethlehem Steel will 
have spent $89,000,000 in new construction — from 
the end of 1915 — equivalent to six times, or $600 
per share for its common stock. This construction 
implies additions to working capital of not less 
than $15,000,000, or $100 per share, in the same 



Continuation of Dividends 51 

period, so that it may be expected that the book 
value of Bethlehem common at the close of 1919 
will be approximately $1,000 per share. 

As a matter of fact the value of the stock will 
increase more rapidly than these figures would in- 
dicate, for most of the earnings to pay for this con- 
struction work will be made within the next year. 
Bethlehem is now making profits of well over 
$5,000,000 a month, and should keep up this rate of 
earnings, or better, until near the end of the year. 
So that some $400 a share should be added to the 
value of the stock before Dec. 31, 1916. 

From this must be subtracted any dividends 
paid. And here we come to "milk in the cocoa- 
nut." Will Bethlehem continue to pay dividends 
at the rate established early this year, or 30% 1 

For several reasons I am inclined to believe that 
it will. In the first place it has long been well 
known that the chief objection of Schwab's to de- 
claring a dividend on the issue in the past was his 
desire not to establish a rate until it was practi- 
cally certain that it could be maintained. Can a 
dividend of $30 a share on Bethlehem common be 
maintained? 

I can see no reason why it should not. Bethlehem 
Steel will have invested in plant and working 
capital nearly $180,000,000 at the end of the next 
three years. To pay the regular 7% dividend on 
its preferred stock, and 30% on its common, a 
total of less than $5,500,000 annually, would re- 



52 The Story of Bethlehem Steel 

quire a return on this investment of about 3%. 
This is far from a large yield, in fact it is a 
very small one, and it is a safe bet that Schwab 
and his associates will obtain one higher than 
this. And the yield will be increased proportion- 
ately with increasing capital expenditures with 
the possibility of still larger dividends. 

In 1913 and 1914, before the, war profits began, 
Bethlehem's average earnings net for stock were 
$5,356,361 on an investment of about one-third 
the sum named. And the Bethlehem stockholder 
may, in the future, confidently expect large re- 
turns from the Pennsylvania purchase. 

Bethlehem has successfully weathered its 
storms. It has reached the crest of the hill, and 
its future seems assured. 




EUGENE G. GRACE 



CHAPTER IV 

Schwab's Theories — 'The "Boys of Bethlehem" — A Peep into 
THE Future. 

CHARLES M. SCHWAB is a man with a 
theory. He has done much to prove it, but 
there is one thing that prevents, that dis- 
proves it absolutely — and that one thing is 
Charles M. Schwab. 

Briefly, his theory is this: That practically 
every man, given an equal opportunity, would 
reach as great success as another, that there 
are no men of extraordinary ability. 

He points to his ''boys" to prove his claim, to 
the young men to whom, when he went down to 
Bethlehem, he gave the opportunity to show 
what was in them, and every one of whom has 
''made good." 

But, so far as now appears, there is not an- 
other Schwab among them. 

The story of Charles M. Schwab's success has 
been so often told that only a very brief synopsis 
need be given here. Born in Williamsburg, Pa., 
on Feb. 18, 1862, Schwab entered the steel trade 
under Bill Jones, then manager of the Carnegie 
steel plant, at the age of 18. Within a few years 
he worked his way upwards, his unusual ability 
drawing the attention and favor of the former 



54 The Story of Bethlehem Steel. 

Steel King to him, and when only 30 years 
of age was made manager of both the Homestead 
and Braddock plants of the company. 

In this position Carnegie gave him practically 
a free hand, although the old Scot at times was 
troubled at the bold steps taken by the younger 
man in the way of spending money for expan- 
sion. Success dogged his footsteps and Carnegie 
eventually made him president of the Carnegie 
Company. 

At the close of 1900 Schwab, who, both his 
friends and competitors say, is the greatest sales- 
man that ever lived, put across the biggest sale 
ever consummated — the sale of the Carnegie 
properties to Morgan for $492,000,000. It was 
Schwab who persuaded Morgan to finance the 
organization of the monster United States Steel 
Corporation which purchased the Carnegie Steel 
Company. 

At the age of 39 Schwab found himself presi- 
dent of the largest corporate enterprise the 
world had ever seen. But the new job was gall- 
ing to him. He was accustomed to almost abso- 
lute freedom of action and he did not long re- 
main president of U. S. Steel. In 1903 he re- 
signed, partly for this reason and partly on 
account of ill health, and it was not until the 
following year that the circumstances attending 
the failure of the United States Shipbuilding Co., 



Schwab Selects His "Boys" 55 

already related in an earlier chapter, caused Mm 
again to enter the steel industry. 

The world at large had credited Schwab's 
success in great part to the undoubted friend- 
ship which Andrew Carnegie bore to him. Schwab 
knew this and, when he took up the reins of 
management of the newly organized Bethlehem 
Steel Corporation, he was determined that he 
would make the company a success by his indi- 
vidual efforts. 

For this reason he decided to select for the 
carrying on of the enterprise only men already 
with the company; to bring in no new men. He 
believed that there were quite a number of young 
men at Bethlehem who, under his leadership, 
could take charge of the company's operations 
and make the proposition a paying one — and 
events proved that he was right. 

He selected fifteen of these men, the original 
**Boys of Bethlehem." Of course his choice was 
based upon a careful study of the abilities of the 
human material which the company offered. Only 
one of the ''boys," James H. Ward, came to 
Bethlehem with him. 

Not one of the fifteen has failed to justify 
Schwab's faith in him. And Schwab, on the 
other hand, has kept his promise to the fifteen. 
When he selected them he told them that, if they 
stuck to Bethlehem Steel, gave to it all their 



56 The Story of Bethlehem Steel 

ability and energy, he would make them all mil- 
lionaires. I am not sure that every one of the 
chosen few is now the owner of millions, but sev- 
eral, at least, are, and the rest are well on the 
way to becoming so. 

Of all the *'Boys" the one who has risen to 
greatest prominence in Bethlehem Steel, and in 
the steel trade, is Eugene G. Grace, now presi- 
dent of the corporation. Grace, incidentally, 
who was getting a very small salary at the time 
of Schwab's arrival in Bethlehem, is now many 
times a millionaire and is credited with having 
received over one million dollars in salary and 
bonuses in a single year — 1915. 

Grace was born in the little town of Goshen, 
N. J., on August 27, 1776. He entered the service 
of the Bethlehem Steel Co. after graduating as 
an electrical engineer from Lehigh University, 
his first position being a very humble one — that 
of crane operator. Later he worked his way up 
to assistant superintendent of the electrical de- 
partment. 

But the actual business of making steel seemed 
to exert a fascination over the young man and he 
got himself transferred to the open hearth de- 
partment, in which department he was working 
when Schwab made his original purchase of the 
Bethlehem properties. 

At this time Schwab was president of the Steel 



Eugene G. Grace 57 

Corporation. Grace was now head of the yard 
department, which he had thoroughly reorganized. 

Grace's first meeting with Schwab was on tiie 
occasion of the latter 's first visit to the plant 
after the Bethlehem Corporation was organized 
in 1904. As head of the yard department he had 
to attend to the switching of the ''big boss's" 
car, and it was while hanging onto the back of 
the car that he first saw the man who was to ex- 
ert so powerful an influence on his destiny. 

It did not take Schwab long to recognize and 
appreciate the thoroughness with which Grace 
had executed the work of the reorganization of 
his department, and when, shortly after, the com- 
pany's mines in Cuba proved unnecessarily ex- 
pensive to operate, Grace was selected to reor- 
ganize them. Which he did with entire satisfac- 
tion to all concerned. 

But his abilities were soon needed nearer 
home. One of the first acts of the Bethlehem 
Steel Corporation was to build a big structural 
mill at Saucon, for making the Grey beam, of 
which mention has already been made, and 
Schwab selected Grace for this work. He was 
put in charge of the erection of this plant, which 
has been an unqualified success. 

In 1909 Grace took still another step upward, 
becoming general superintendent of the Bethle- 
hem plant. Shortly afterwards he became a di- 



58 The Story of Bethlehem Steel, 

rector of the company, then its president, and 
finally president of the corporation while still 
under the age of 39. 

Says James H. Ward, who went down to Bethle- 
hem with Schwab : ' ' When other men had to refer 
to records for details of many subjects connected 
with their work, Grace's storehouse of information 
was his own head. He knew and had ready at all 
times the details of every matter connected with 
his job, and not only that, but of most of the affairs 
of the company." 

As president of Bethlehem Steel Corporation 
Grace is in practically full charge of all the 
company's affairs, and it will be part of his work 
to reorganize and make a profitable enterprise of 
the Pennsylvania Steel Co., recently purchased 
by Bethlehem. 

For Schwab does not believe in reining in the 
abilities of anyone. He selects a man for re- 
sponsibility, places it on his shoulders and then 
leaves him pretty well to his own devices. ''It is 
better," he says, "for a man to make a mistake 
now and then. There never was a man that 
did not. Men learn by their mistakes. And if 
they are the right kind of men they never repeat 
one mistake. That is all one can expect." 

Incidentally, the "Boys" of Bethlehem are all 
directors of the Bethlehem Steel Co. They con- 
stitute its board of directors. And they are al- 



Daily Meetings 59 

ways in direct personal touch with the affairs 
of the company. Every day they meet in the 
big lunch room on the top floor of the Bethlehem 
Steel office building at South Bethlehem and, 
after luncheon, over their cigars and coffee, dis- 
cuss details of the company's business in every 
particular, from the hiring of a man for a va- 
cant position to the purchase of properties in- 
volving millions. 

And around this table every man is equal in 
authority, for each is a director, and no more. 
Upon leaving it they each assume their respec- 
tive official positions, but while in friendly con- 
tact with it they are all on the same footing and 
express their opinions with absolute freedom. 

One of Grace's chief characteristics is his 
great power of concentration. When engaged in 
any work, confronted by any problem, he is able 
to put from his mind every other thought and 
engage his entire energies in the job at hand. 
To this attribute, more than to any other, those 
who have watched his success attribute it. 

''Grace concentrates on everything he does," 
Schwab told me, "whether work or play. He 
plays the best game of golf of anyone in the 
neighborhood — around par — and it is because 
when he plays golf his every faculty is work- 
ing on one thing alone, playing the game." 



60 The Story of Bethlehem Steel 

Grace himself dismisses reference to the mat- 
ter easily. ''Any man who wants to succeed in 
his work has got to concentrate on it — that's all 
there is to it," he says. 

When Grace was appointed president of the 
Bethlehem Steel Co. his first action was to call 
together its sales managers and to inform them 
that he expected the most absolute integrity in 
all their dealings on behalf of the company. He 
informed them that Bethlehem Steel would make 
no contract to which it did not intend to live up 
to fully, and that any man who made a contract 
of sale in which he gave evidence of failing to 
realize this fact by inserting a clause giving the 
company a loophole to escape from so filling the 
contract would be given ten minutes' notice. He 
has never had cause to enforce this threat. 

''Grace is a man of the most unswerving integ- 
rity," says Schwab. "Some of us at times may 
not be absolutely exact, but if Grace says a thing 
it is SO; if he promises, his promise will be ful- 
filled to the letter, and to the spirit." Perhaps 
Grace's integrity might not be worthy of mention 
but for this fact: that in answer to a question 
which I put to every one of his associates that I 
met, "What is Grace's principal characteristic?" 
the answer invariably was, "integrity — and after 
that, concentration." 

Besides being an excellent golfer Grace is an 




ARCHIBALD JOHNSTON 



Grace's ''Luck" 61 

ardent baseball "fan." I am told that he has 
at his fingers' ends the names and averages of 
all the prominent players on the major leagues; 
that the first part of the morning paper he turns 
to is the baseball score. 

Grace has the reputation of having been born 
lucky, but those who know him do not attribute 
his success to luck. In the steel trade the opin- 
ion is expressed that but one thing has kept him 
from being better known to the public — the over- 
shadowing fame of Charles M. Schwab. Yet he 
is not jealous. 

Archibald Johnston is, perhaps, the best known 
of the Bethlehem "boys." Unlike most of the 
others he had already attained a position of 
prominence with the company at the time that 
Schwab took personal control. For some years 
he was president of the company, until succeeded 
by Grace, but his specialty has been and still is 
the closing of big foreign deals. A man of the 
world, suave, courteous, but ever keeping an 
eye out for the nimble contract for steel or any- 
thing made of steel that is made at Bethlehem, 
Johnston is recognized by competitors as a 
dangerous man to fight against in foreign trade. 

John McGregor, possibly, has no actual right 
to a place among the "boys" as his job is far 
removed from Bethlehem. McGregor is president 
of the Union Iron Works of San Francisco, one 



62 The Stoey of Bethlehem Steel 

of Bethlehem's paying subsidiaries. But never- 
theless he is a striking instance of the result of 
ability and hard work combined with opportu- 
nity, as well as of Schwab's seeing eye in select- 
ing his men. 

For several years after the organization of the 
Bethlehem Corporation the Union Iron "Works was 
one of, if not, its most unsatisfactory branches. 
Every effort to make it pay had proved a failure. 
One day Schwab suddenly told the fifteen that 
he had selected a new head for Union. 

*'We have a young clerk named McGregor in 
the office," he said. ''I have been watching him 
and I am going to make him president of Union 
Iron Works." The idea seemed fantastic and 
Schwab was not unopposed in his selection, but 
he was determined, and soon after the young 
clerk found himself pitchforked into a new posi- 
tion of responsibility. Within a year after his 
arrival at San Francisco Union was paying. 
Schwab's choice was justified, his almost un- 
canny power of picking men for the right job — a 
power exercised by all really great leaders 
whether in industry or in war — proven. 

All of the Bethlehem ''boys" avoid the lime- 
light. They prefer that it be focused on their 
leader. But of all, there is probably none quite 
as shrinking as James H. Ward. Ward went 
to Bethlehem with Schwab as his private secre- 



Schwab's Seeing Eye 63 

tary, and is still known to the newspaper men of 
New York, who go to get news from the head of 
Bethlehem Steel, in that capacity. But Ward is 
also a vice-president of the company — and Schwab 
does not promote men for any reason but genuine 
merit. 

C. Austin Buck, vice-president in charge of 
raw material, is another graduate of Lehigh 
University who went to work for Schwab as 
soon as he graduated. Henry S. Snyder, another 
vice-president, started as a stenographer. Now 
his special job is to keep tabs on the corpora- 
tion's shipbuilding plants, and he has at least one 
stenographer at his call. 

W. Frank Roberts, another graduate of Lehigh, 
started in the boiler room. He is now vice-presi- 
dent in charge of operations. Barry H. Jones, 
also a Lehigh product, hoped when he was young 
to make his mark as a mechanical engineer, but 
he now acts as secretary and treasurer of the 
corporation, and manages to hold down the job 
with eminent satisfaction to all concerned. 

F. A. Schick, comptroller, was acquired by 
Bethlehem from another steel plant, but in his 
ten years or so of service at Bethlehem the 
others have almost forgotten that he did not start 
in with them, as they have in the cases of G. H. 
Blakeley and E. S. KJnisely, whose jobs are to 
sell the steel that the Bethlehem mills make. 



64 The Story of Bethlehem Steel 

J. E. Matthews, manager of the ordnance de- 
partment, has been kept busy of late closing con- 
tracts for munitions for Europe. He is right on 
the job all the time, and what Schwab himself 
does not get Matthews brings in to Bethlehem. 

W. M. Tobias, who has charge j of the pur- 
chasing of all supplies for Bethlehdm, is another 
of the "boys," and more recent additions to 
their ranks are H. E. Lewis, assistant to the 
president, and E. A. Lewis, superintendent of 
the Lehigh plant. 

Former members of this select coterie of abil- 
ity and push were A. D. Mixsell, who died in 
1915, and J. D. Hagenbuch, who died recently. 

The ''boys" of Bethlehem, who, of course, are 
now boys only by courtesy, are every one of them 
at their desks before eight each morning. Schwab 
himself, when he is in town, sets the example, 
and the lazy clerk who wants to roll over for 
ten minutes more sleep of mornings is discour- 
aged by the knowledge that all the bosses are 
punching the clock — so he usually decides in 
favor of rising. He is helped in this decision 
further by the knowledge that there is always 
a place around that lunch table at the plant for 
one more — one who shall have proved his worthi- 
ness to sit at the board. 

He knows, more, that if he proves his worth, 
no outsider will be brought in to supplant him. 



Bethlehem's Future Assured 65 

for Bethlehem's policy still is to recruit its offi- 
cials from the ranks of its promising juniors. 

On the "Boys of Bethlehem" depends the fu- 
ture of the company. And here is something 
that there seems to be a general misapprehen- 
sion about: Bethlehem is not a one-man concern. 
There is a more or less widespread feeling that 
if the company should lose from any cause the 
guidance of Charles M. Schwab its greatest asset 
would be destroyed and its value as an earner 
of dividends materially lessened. Now Schwab 
is a valuable asset, beyond peradventure, but he 
himself indignantly denies that his *'boys" are 
not competent to carry on his work at Bethle- 
hem by themselves. 

And having met Grace and the rest I believe 
that he is right. That is why I am confident in 
the future of Bethlehem Steel. 



LIBRARY OF CONGRESS 

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